Itemized Deductions 7/26/11Most people cringe when they hear the words “itemized deductions”, the thought of accounting for dollar amounts for each individual deduction can make a person’s head throb. However, itemizing your deductions can lower the taxable income by deducting allowable expenses. What are allowable expenses? Taxes paid, home mortgage interest, business related expenses, charitable contributions, medical and dental expenses and even casualty and theft losses, to name a few.
When planning deductions keep in mind that many deductions do not allow the full amount of what was paid during the tax year to be claimed. Only medical expenses that exceed 7.5 percent of the claimed adjusted gross income can be claimed, charitable contributions can only be deducted if the contributions are less than 50 percent of the adjusted gross income. Make sure that all receipts pertaining to deductions are kept filed in a safe place so that when the time comes to do the taxes all dollar amounts can be backed up with a paper trail. If there is more than one type of deduction being made, create folders for each one and place all pertaining information in the correct one, placing them in easy reach for tax time. The records are for the benefit of the taxpayer in case of an IRS audit. You will be required to show justification for all amounts that have been included on the tax return. Without records to justify the deductions the IRS is within their rights to penalize you for a fraudulent claim. Also keep in mind that all records should be kept for at least 3 years. Records considered valid receipts are store receipts, bank records, credit card statements, and paid invoices. If all your records are in order, than the IRS is less likely to penalize you in the case of an audit.
Keeping records will make itemizing taxes go much smoother and will also help to prove that all things itemized are valid and none fraudulent. With proper records dealing with the IRS is much less frightening and can make for a smooth audit.